2026 Theses Doctoral

Essays in Financial Economics: Determinants of Corporate Financial Policy

Shi, Yifan

Corporate financial policies – such as investment, financing, and payout decisions – play an
important role in shaping capital allocation in the economy and, in turn, influence firm growth and
overall economic productivity. This dissertation examines two factors that shape these corporate
financial policies but remain incompletely understood: governance networks and tax policy.
Governance networks between firms are often established through board interlocks, which
occur when firms share one or more directors. Despite the prevalence of board interlocks in the
United States, causal evidence on how they influence corporate decisions across firms remains
limited.

In the first chapter of this thesis, I show that shared directors transmit corporate actions
across firms, using plausibly exogenous shocks to directorships based on mandatory board
retirement ages. Firms are more likely to mirror their interlocked peers’ dividend initiations, large
dividend increases, new equity issuance, and forward stock splits. This mirroring behavior cannot
be explained by alternative inter-firm linkages such as customer-supplier ties, common
institutional ownership, or shared hedge fund activism. Long-tenured, less-busy directors on
outsider-dominated boards drive this effect, suggesting that experience and reliance on external
information may contribute to the observed diffusion. A long-short portfolio that buys firms
whose interlocked peers undertake a given action and shorts matched controls earns abnormal
returns, consistent with investor underreaction to directors’ connections. These results highlight
board interlocks as an important channel for both corporate decision-making and return
predictability.

Tax policy could affect corporate decisions by altering firms’ cost of capital. In the second
chapter, I examine how the net operating loss (NOL) carryback and carryforward policies affect
investment and financing decisions of public C corporations in the United States. Exploiting
variation in state-level net operating loss (NOL) carryover policies in the United States, I find that
carryback provisions increase corporate investment and employment, financed by both internal
cash and external debt. Carryforward provisions have no effect. In particular, carrybacks lead to
higher corporate innovation, as reflected in increased R&D spending and patenting, improve
operating performance, and do not increase business risk. Interestingly, the investment responses
are primarily driven by financially unconstrained firms, suggesting that constrained firms may be
unable to respond despite more generous loss-sharing provisions. On the extensive margin,
carryback provisions are associated with new business creation.

In the third chapter, I study how startups and investors respond to capital gains taxation,
using a quasi-experiment of Qualified Small Business Stock (QSBS) capital gains tax exemption
in 2010. Startups in treated industries receive 8.6% to 13.5% more funding following the policy
change, allowing them to scale up their operations, with revenues increasing by 21%. However,
treated startups do not exhibit improvements in innovation or profitability. On the extensive
margin, there is an increase in startup entry into treated industries, but roughly one in four of these
startups eventually fails. These findings suggest that investors deploy additional capital into
lower-quality firms following the tax incentive. There is also suggestive evidence that investors
time the realization of capital gains by bringing portfolio startups public earlier, while no similar
timing response is observed for buyouts or mergers and acquisitions.